Tax Auditors Set Their Sights on Small Businesses

By Raymund Flandez

The nation’s small businesses are being “targeted for more rigorous, more painful scrutiny by both federal tax-enforcement officials and the nation’s accounting standard-setters,” according to a report this week by Accounting Today.

The first sign of increased attention on smaller businesses came last summer with a new study by tax researchers at the nonpartisan Transactional Records Access Clearinghouse at Syracuse University. They discovered that the number of federal tax audits targeting small businesses with between $10 million and $50 million in assets increased 29% from 2005 to 2007. Companies whose assets fell under $10 million were 41% more likely to be investigated by the Internal Revenue Service.

In contrast, large companies with more than $250 million in assets were 40% less likely to be audited than in previous years.

Why the change? Accounting Today speculates it has to do with the bureaucratic process — an IRS examiner told the publication that he has been directed to close audits more quickly to conserve the agency’s resources, which means going after “little fish,” those with fewer resources to fight an audit.

The IRS isn’t the only organization putting small businesses’ books under a microscope.

The Public Company Accounting Oversight Board, a nonprofit corporation created by the Sarbanes-Oxley Act of 2002, instructed accountants earlier this year to take a more skeptical approach toward audits of smaller clients, especially actions by top management. The board says, “The extensive involvement of senior management in day-to-day activities and fewer levels of management can provide additional opportunities for management to override controls in smaller, less complex companies.”

The board posits the theory that the economic downturn may tempt employees in small businesses to cut corners and engage in “financial chicanery.”

Do you think the IRS’s action is unfair? Have you noticed increased scrutiny of your business?

Comments (5 of 6)

"Well it feels like this web page is fairly sizzling, congratulations on the proprietor! I attempt to go through as much as feasible online when I've additional time. Unfortunatley it is starting being the norm for individuals to spend all day for the internet instead of of basically residing, what a shame. All the same, carry on with all the good composing anyhow...leastwise the flocks can have choice content material to feed thier dying minds. Perhaps its best off, the typical individuals arn't very smart at any rate."

I own a small business and am being audited because my accountant messed up. Am I supposed to get an accounting degree in order to run my business? The IRS says so! We have to sign our tax returns that we understand the penalty of SOMETHING THEY HAVE MADE IT IMPOSSIBLE FOR US TO UNDERSTAND. Now, we must pay for audits that was not our fault in the first place! fairtax.org

10:37 pm April 2, 2009

Little guy wrote :

The government of the people, by the people and for the people... is not true any more.
It should goes like The government of the money, by the money and for the money. - very disappointing.

7:36 am March 19, 2009

Donald Cranford wrote :

This is very difficult news to stomach. Regardless of the specifics of the actions here, the optics say:
Big business first, small business second. The 'financial chicanery' allegation is incredibly risible. What about the 'financial chicanery' that brought our economy to its knees?